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Moving further towards free trade

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Australia and Malaysia have recently negotiated a new free trade agreement (FTA), which is expected to come into force in 2013 after ratification by both countries. While Malaysia is part of the Australia/New Zealand/ASEAN FTA, this new agreement will allow Malaysian tariffs to drop even faster, with 97.6 percent of tariffs eliminated from day one. There is also on-going action with the Trans-Pacific Partnership or TPP, with more countries now interested in being part of it; Japan, Canada and Mexico for instance. This is a very positive outlook then in a period of global uncertainty, when many countries tend to resort to protectionist measures to look after their own constituents first.  It does show that most governments now recognise that free trade is the way to build wealth and create best practice economies. So how does Australia fare in all this?  If we had a more advantageous exchange rate, we would fare very well!  Unfortunately a lot of our businesses are struggling at the moment, under the weight of a number of headwinds.  Apart from the high AUD versus our  "competition" in the USA and Europe, we also have very high comparative labour costs and a swag of government charges and imposts that make it difficult to effectively compete. As many exporters complain, it is more expensive to move product from farm or factory to their nearest port, than to transport it across the world to the end buyer. The bright spots tend to be the services sector of exports and companies with a real global technology edge through their innovation, where price is a bit more elastic. The exchange rate has also made imported product much cheaper on our shelves;  good news for consumers but not for local producers and manufacturers. Some industries will adapt and survive, others may not.  Already many are outsourcing parts of their business offshore to cheaper production centres; and not just in manufacturing but in services also. The Australia we know is constantly changing, and in a free market economy that is supposedly a good thing.  Let’s see what free trade can deliver for Australian business in the next decade. It will certainly be an interesting ride!

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